24/7 Wall St.

As each new year arrives, 24/7 Wall St. looks at each of the 30 Dow Jones Industrial Average components and assigns a forward value for the Dow based on a mixed methodology. We have actually come within about 1% for each of the peak projection of the DJIA in past three years using this methodology. We are not just looking for individual stocks to buy in 2013. We use consensus price targets from Wall St. analysts and we use an equal weighting of the components rather than the price-weighting used to calculate the DJIA.

Predicting the forward value of indexes and the stock market often feels like a game of horseshoes, or a bit like throwing hand grenades, because being close enough is generally all that matters. The blended DJIA price target peak for 2013, using the 24/7 Wall St. methodology is 14,590, or a gain of 11.34%.

This may sound to investors as though it is wildly bullish, but the projected peak gain in 2012 was almost 12% as well. It seems a bit odd to just skip over the entire year with a mathematical outlook. The fiscal cliff debate of 2012, the coming debt ceiling debate and the possibility of a recession in the United States all come into play. Here is the history of this peak DJIA calculation since the recovery of the recession:

• In 2012, the peak of 13,661.87 in the DJIA, compared to the same projection of 13,678 we used.
• In 2011, the methodology called for a blended peak consensus of 13,042.06. While the DJIA closed 2011 up 5.5% at 12,217.56 for the year, the peak 2011 DJIA price was 12,928.50.
• In 2010, the methodology called for a target of 11,455, and the DJIA closed out at 11,577.51 for the year.

The past year had some incredible wins and losses, as well as some strange developments that almost seem hard to imagine if you tally everything up. Bank of America Corp. (NYSE: BAC) was the biggest DJIA winner in 2012, with gains well over 100%. It was the biggest dud of 2011 and was really feeling “at risk” a year ago, but analysts now consider its price overvalued. J.P. Morgan Chase & Co. (NYSE: JPM) lagged significantly due to the losses from the London Whale, and it is not even expected to generate 10% returns in 2013.

McDonald’s Corp. (NYSE: MCD) was the biggest winner of 2011, but it was the third worst performer of 2012, with a loss of close to 9%. Intel Corp. (NASDAQ: INTC) continues to be passed by the mobile computing move, and its shares were down by double digits in 2012. Hewlett-Packard Co. (NYSE: HPQ) was the DJIA’s biggest loser, with a loss of more than 40%, and analysts now show an expected loss for 2013, as well.

Other strange developments have come about as well. Microsoft Corp. (NASDAQ: MSFT) was up only 3% in 2012, but the new consensus price target is calling for a magic performance of close to 30% when it is struggling in its core markets. Procter & Gamble Co. (NYSE: PG) is under pressure from an activist investor group and analysts only expect its performance to be largely equal to other DJIA stocks.

Read also: 2013 Market Picks … from Everyone!

AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ) both had a respectable 2012 due to investors chasing yield, but they are expected to return about 8% each in 2013. Alcoa Inc. (NYSE: AA) hardly budged in 2012, but it is somehow expected to have a gain of about 20% in 2013.

General Electric Co. (NYSE: GE) is now expected to outshine the performance of both 3M Co. (NYSE: MMM) and United Technologies Corp. (NYSE: UTX). Chevron Corp. (NYSE: CVX) is supposed to have performance almost double that of rival Exxon Mobil Corp. (NYSE: XOM). UnitedHealth Group Inc. (NYSE: UNH) is the newest DJIA component, and its performance in 2013 is projected to be a whopping 23%. Wal-Mart Stores Inc. (NYSE: WMT) finally greatly outperformed its expected price moves in 2012, and analysts are now positive ahead. Even Home Depot Inc. (NYSE: HD) incredibly outperformed expectations in 2012, and analysts are now looking for more good things to come in 2013 as housing is expected to keep recovering.

The Coca-Cola Co. (NYSE: KO) split its stock in 2012, and Kraft Foods split itself up only to get booted out of the DJIA in favor of UnitedHealth. Merck & Co. (NYSE: MRK) out-yields Pfizer Inc. (NYSE: PFE) and is expected to perform better in 2013.

As in prior years, we have used the consensus analyst price targets from Thomson Reuters for each of the DJIA stocks. Rather than using the DJIA price-weighted index calculation, we used an equal weighting that shows an expected 11.34% gain to the peak value of the DJIA in 2013. If that 14,590 projection turns out to be true, then investors have another great year to look forward to.

The reason we use an equal weighting for the DJIA is rather simple: as each year passes, not all of the sectors and components perform as expected. Still, it turns out that as a group the weighting adjustment we use in calculating the peak comes within about 1%. The big caveat is that analysts almost certainly will make new adjustments on the major stocks in the first few weeks of 2012.

Here is the breakdown of each of the 30 DJIA stocks for 2012 in a simple table by ticker. We have shown the end of 2012 price and the consensus price target from Thomson Reuters. We have also shown the expected gain in 2013 to the consensus price target, as well as the 52-week trading range for each of the 30 DJIA stocks. We even went so far as to include the dividend yield so that investors could see how much this plays into the return of each.

JON C. OGG